A competitor analysis involves looking at some competitor sites (not surprisingly) to see how their design stacks up and what features they have. It will give you an idea of what other key players in your sector are doing. If you’re new to working with a client this is good for giving you the market context the company are operating in, as well as what users will expect if they’ve used similar sites before.
If you’re in-house you might find yourself looking at competitors quite often (or hearing their names brought up in meetings). A decent analysis will help you be objective about them rather than getting obsessed with certain details. By using their site as a customer you can judge how well their features work.
As much as you might want to solve your users' problem in a completely original way, it’s silly to overlook what others have done before to tackle the same issue. They’ve probably learned a few things about what works.
You don’t necessarily need to analyse the whole website (though if it’s very small you might want to). Judge competitor products on the user flow you are most interested in at that time. So if you’re redesigning a sign up flow, study the sign up steps involved for those rival services.
I find studying five of the top competitor sites is normally enough to give yourself a good sense of what the best are doing. In my experience your client usually has a clear idea of who these are. If there are no direct competitors then try looking at companies with similar business models or those that are comparable in some way. You can do more than five if it’s a particularly big project but you’ll probably find you’re moving into different sectors, it’s better to be narrow and look at only sites that are solving the same problem.
Choose a document format you prefer for recording them, it can be spreadsheets, Google docs, presentations. Then break each competitor into sections. If you’re studying sign up flows then perhaps one page per step of the flow. Add your notes and screenshots for each one. Or you can analyse by usability with a section for feedback, errors, language, navigation etc.
Once you’re done analysing, create a summary sheet stating your key findings (it helps you define what these are too). The kind of things you can cover include features you think are essential, who you think are the best in class, who you think you should avoid following, etc.
Clients/managers saying, “Just copy these guys, they’re the best”—you shouldn’t study only one competitor because a) this is ripping someone off and b) there's probably other things you'll be missing out on.
“We should have feature x, everyone else has so it must be good”—maybe you should but it’s possible everyone else just copied the market leader without seeing if there was a user need.
Irrelevant competitors. Ask clients/stakeholders to justify ones that may not make any sense, suggest some of your own if you’ve seen some that might make more sense.
“We don’t want to copy anyone, we’re unique”—working on a completely new concept is rare, there’s usually someone out there doing something similar. And an analysis of others can at least help you position yourself.
I find Google Docs are good for this and for sharing with others to comment on (free).
To analyse five competitors it normally takes me about one working day.
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Note: the examples in this guide are for website design, but most of the content is also applicable for native apps and software.